The following Media Release was issued by the Scottish Land Revenue Group today
The £60bn Route to Scotland’s Economic Independence
Devolution of new financial powers to Holyrood could lay the foundations for an independent Scottish economy within the UK, according to a new Glasgow-based think-tank.
The Scottish Land Revenue Group (SLRG) estimates that Scotland’s government could expand the economy by £59.8bn over the 5 years up to the Holyrood election in 2021 if, as expected, it is given control of the Income Tax.
The forecast assumes that the government would use its powers to rebalance the tax system. The process would begin by zero-rating the Income Tax, scrapping the existing property taxes and replacing the revenue with a new charge on location rents.
The Income Tax now yields £11.5 bn. Studies commissioned by the SLRG show that replacing Income Tax with one charge on land rents would boost employment by 55,000 jobs.
According to Dr Roger Sandilands, emeritus professor of economics at Strathclyde University: “This is not a revenue-neutral policy. By switching the way revenue is raised, the losses caused by the Income Tax are turned into financial gains.
“This is an anti-austerity strategy,” Dr Sandilands stresses. “The tax shift means that government does not have to cut public services. Tax cuts would be self-funding. Under current policies, when taxes are cut, the money does not stay in people’s pockets. Ultimately, it flows into the land market. People have to pay more to buy or rent homes or commercial properties. By collecting that revenue in the form of location rents, government can maintain current spending on services like the NHS.
“So why switch the way revenue is raised? There are two benefits. First, without reducing people’s take-home pay, it becomes cheaper to hire people. Scotland would become a magnet for investors wanting to create enterprises within the UK. This reverses the drift to London and the South-east.
“Secondly, the so-called ‘deadweight losses’ caused by bad taxes would be reduced. There is a net gain to the economy. We estimate that, if Holyrood exercised its power to zero-rate the income tax, the Scottish economy would expand faster than the UK average. GDP would increase in a virtuous cycle of growth. The boom/bust property cycle would be damped down in Scotland, and our economy would leave the rest of the UK behind.”
These themes will be explored at an SLRG conference at The National Piping Centre in Glasgow on February 25. Speakers will discuss how communities can be rebuilt, trust restored in the institutions of governance, and investment in the economy can be increased without incurring government debt.
Contact SLRG to book a place
Rewards from Eliminating Deadweight Taxes: The hidden potential of Scotland’s land and natural resource rents
by Professor Roger Sandilands.
It is immensely exciting that people are thinking in this way and making suggestions that we really could do things differently.
Donald…. my feelings are that this proposal should be implemented as the first step in opening up the wasted asset that Scotland has. The scandal of land misuse in Scotland has been allowed to develop to provide gains that provide the minimum of benefit to Scotland. As the recent post on who owns the Kildrummy Estate proves. If only the incoming SNP admin can grasp the Thistle.
A dream come true. Income is so much overtaxed compared to wealth.
Tenants paying high income taxes which the London parties use to subsidise the wealthy BTL/property speculators.
Big landowners/estates aside – not clear how this might affect domestic tenants/owner occupiers … if a landlord (of a domestic property) is taxed on the ‘land’ then that tax will pass on to the tenant as part of rent – regardless of ‘ability to pay’? Ability to pay would also have to be considered for owner-occupiers (of domestic properties).
Should be an interesting one – if anyone in government takes the time to assess properly rather than the whole report getting a good airing, then left to gather dust on a shelf.
Ian, if the full rental value of land is collected as public revenue, the incidence of the levy will be on landowners. If Council Tax was abolished for example, tenants would receive windfall gains that would be steadily captured by landowners in higher rents. The converse is true also. The key impact is behavioural. Landlords will no longer receive rents for the value of the location (so as prices in valuable sites in city centres rise, landlords will receive none of this in rent). They will, however, be able to “earn” the return on investments they make to the property (improvements) on that land. So increasing energy efficiency, installing nice bathrooms etc will all generate a return to the investor.
Ability to pay comes into play when people choose to buy land. They buy land on which the land rental value payable is affordable just as you or I would (probably) not be able to afford a £1 million house – we don’t have the ability to pay the capital value nor the likely annual LRV so we buy somewhere cheaper and within our means. The only issue that arises is a transitional one where a new fiscal regime is introduced and there are winners and losers. The losers need a transition period. That’s easily done though.
Hmm … will certainly be interesting to see how the figures add-up in practice … abolishing council tax and income tax is clearly a massive change which would be welcome by we ‘common men’. The projected increase in GDP per head makes it look ‘too good to be true’! – but then again, so did my ‘FIT’ projections …
As I understand it, Westminster is to retain control of ‘The Bedroom Tax’ and by implication it seems reasonable to assume they will want to interfere with Council Tax and Housing Benefit.
The promised devolved powers have been progressively watered down and are now disappearing as fast as Gordon Brown; the man who was personally going to guarantee we got them.
I hope that these measures do come about but wonder how much of value will be left after the various committees, special interest groups and vested interests have stuck their oars in.
well said Andy and landlords will have to compete for tenants as not having a tenant would incur a cost. Since the landlord will not be taxed on the facilities offered to the tenant and ongoing upgrades to the fabric and content of the building, then there’s an incentive to do just that. The only way a landlord could do this is by hiring professional and artisan labour to do so, thus stimulating employment and upgrading the national housing stock as a collateral benefit.
It’s an interesting idea – has it been done anywhere before? I think the SNP are too chicken to do anything like this. They’ve already bottled out of a limit on land ownership.
Not in it’s complete form because it tends to be regarded as too revolutionary. But GDP per head of £59,158 compared to current £22,211 should be enough to attract the attention of all politicians.
at one time having a Scottish parliament was considered revolutionary and look where we have come from since 1979. Likewise with this concept—in the fullness of time and I for one will continue to argue for ‘the hale irn’
Ah bit Michael we now have an SNP leader who is well to the left of Big Eck and may well prove to have what it takes to bring some at least of these much needed reforms about.
this means that with such massive changes, Scotland will have to think for herself and stop trying to divide. Healthy future, I hope the SNP muscle up and go with it. Time to take charge of our destiny
HI, IF INCOME TAX WAS SET AT ZERO, THEN OFFSET BY LVT, WOULD ONLY PEOPLE WHO OWN LAND BE CONTRIBUTING TO GOVERNMENT INCOME.
SALARIED, HOURLY PAID, DIVIDEND, BONUS ETC WOULD BE UNTAXED?
Yes – income would not be taxed at all under this scenario. But bear in mind that a lot of income whether salaries, bonuses or dividends is a return on economic rent so the level of salaries etc would drop to reflect what is a SHIFT that has taken place – from income & consumption to capital & wealth. It is what Oxfam called for this week in Point 4 of their 7 point plan to reduce inequality.
the LVR subculture has an expression —ATCOR—all taxes come out of rent. So. don’t tax, just collect the rent.
indeed Andy, I like that expression ‘we will not pay for what we do and make, we will only pay for what we hold and take’
And inequality should be reduced. Bear in mind though Oxdam refers to the 1%, the 85 billionaires. LVT doesn’t distinguish between slipper farmers, gentleman farmers and normal farmers. Bit of a blunt tool but with potential consequences that will make no difference to the 1%.
the 1% happen to own either the largest area of land and/or that with the highest publically-created LVR ( not many billionaires mansions in Blackhill or Saughton) so they will be paying the most. Since land cannot be hidden by accountants or transferred to a numberless bank account there is no escape from paying their just dues. Mr Tesco-Amazon-Starbucks please NB.
But LVT doesn’t distinguish between a billionaire landowner and a normal farmer. As I said previously they could probably afford to absorb the LVT whereas a farmer may not. You couldn’t give me an expected LVT based on my own farm. We are nit billionaires by any measure. As for Starbucks etc not paying corporation tax? No change there then even though their staff costs would allegedly fall under LVT
An outstanding work. I commend it. Was there not an American City that tried zero income tax with mixed results?
I live on a farm. 260 acres. What would the LVT be? Would the land under the farmhouse be subject to a separate tax?
It depends on the land value (including under farmhouse), the rate that would be applied and any thresholds that might be set (similar to small business bonus scheme in non-domestic rating). These are all unknown and so it is difficult to answer your question.
Thanks for that, I’m just trying to get my head round all this. I’m sure there is mileage in the principles and there are definitely misuses of land accriss the board, from Govts to private sector. Problem us the biggest misusers tend to be folk who are cash rich or have ‘old money’ or who have nothing to with what I call ordinary farmers. The effect of LVT might be manageable to the former but quite detrimental to the latter. Your arguments do see to be on a kind of straight line, cause and effect basis (ie if you do x, then the effect will be y). I think land is unique in that it is in finite supply and some of the LVT consequences will be variable. Standard supply and demand laws may not uniformly apply. The danger is that land owning becomes more the privilege of cash rich who’s other wealth subsidies payment of LVT. Meanwhile ordinary farmers (yes they do exist!) could be hit harder.
The physical buildings, other physical infrastructure and more importantly any labour or products derived from the land will not be taxed. So the harder or more productively you work, the more you get to keep. No tax is being set or sought, just the LVR as determined by societal demand for land under its maximum permitted use under planning regs. On the other hand sitting on land doing nothing, whilst collecting a value everyone else has created for a fixed supply entity, that was not man-made and has no capital value, will no longer be an option.
Would be helpful to have an answer as at the moment it seems as though anyone with land is viewed as a cash cow, regardless of what actual cash they have in the bank (bear in mind LVT will be laid in pounds, not lumps of soil). All I see is lots of everyday folk working hard on their land. So they own it, big deal. Surely there are better ways than this land equivalent of the poll tax.
You will be paying no income tax, UBR, council tax or corporation tax, please bear that in mind. This is not an extra tax, but a replacement that does not penalise work and enterprise. If you improve your house, or find a more profitable way of working your land, the LVR does not increase.
I understand and under respect your point. But without comparative figures it still looks a bit of a blunt instrument. But to move things on, take the farm, 250 acres, OMV OF £2,500 per acres (I genuinely don’t know the value), what would beck reasonable LVT?
It is impossible to say for certain.Bt if agricultural land were still paying non-domestic rates and the rental value of OMV £2500/ac is 5% = £125/acre then you would be paying 47p in £ of that = £58.75 per acre. That’s £14,687 annual rates. Pretty scary figure!
But note 2 things.
When rates on agri land were abolished in 1956, it led to windfall gains for farmers (they had money in their pocket which one year was paid in rates and next year burned a hole in their pocket. What happens in such circumstances is that this saving gets “capitalised” into (mainly) land values (cos folk will pay more for land that is not subject to annual levy than they will for land that is) and (to a lesser extent perhaps) into all the input costs to farming. With more money around, suppliers push up their prices.That’s the main reason agri land values are so high. If you were paying 47p then values would drop and you might be looking at closer to £7000 per year.
Secondly, LRV wil almost certainly be less that NDR cos NDR pays a disproprionate amount of property taxation relative to all property PLUS LRV is a tax SHIFT so even if you do pay more, this is offset by lower income tax rates etc.
Of course, there will be a transition and these shifts will happen over time but the market will anticipate them and factor them in. As Ron says, what will happen is that folk earn a return on their labour and investment and not on land values. This is good long term for everyone.
1956? 70 odd years ago!!
Anyway, perversely, there is no direct link between agriculture and land values. Ironically though the values have probably saved a few from going under it indeed enabled then to borrow to invest.
I do believe that land values are inflated because of the finite supply, planning laws and people wanting to live in the country
I don’t think therefore LVT as a single tool will reverse this. Planning laws restrict availability of building plots, increasing prices beyond the reach of many. If you abolish income tax, this will make a lot of people more cash rich. Combine this with a desire for country living, then it’s kind of obvious well salaried folk will buy land. Meanwhile farmers are either still paying LVT or indeed finding it hard to sustain sn existence.
Finally, our farm is currently let out to another farmer. The previous tenant took the subsidy so our rent is £10k. Doesn’t look good! My concerns over this go beyond my own situation though and I hope you can understand them
What happens to the banking system which even in Scotland will have billions secured against land? As a simpleton it seems to me there’s a major difference between a theory that may have some economic rationale but would be devastating in it’s impementation becuase of where we are now. You can hypothesise all you like but if you shhot your banks and economy to blazes in the process you won’t be a whole lot better off. But of course you’ll have stuffed landowners which seems to be the principal objective of many commentators on this blog.
Of course any tax shift requires a transition and financial capital needs to de-leverage anyway. As for “stuffing landowners” I think most commentators on this blog are landowners. They are keenly aware of the challenges facing land markets whether that be agricultural, domestic or industrial. LRV though will increase investment in land because it will eliminate unproductive speculative gains. That is what Roger’s paper is trying to do – identify the scale of the current deadweight losses.
There must be many people (myself included) who own their own home in areas that have subsequently become more desirable and who would not be able to afford to buy their house at its current value due to their modest income. Such people could potentially see their tax liability increase significantly if LVT replaced income tax completely, with disastrous impacts on household budgets. It’s all very well saying that such people now own an asset of considerable value but that is meaningless unless they sell the house. Although high house prices in many areas already prevent young people from buying a house where they grew up, some will be able to remain or return if they inherit their parents’ home. If LVT drove these people out as well it would simply exacerbate the division of the country into ghettos for rich and poor and further damage the social fabric of many communities.
I’m not against the idea in principle and I can see the benefits, but I think we need a clearer idea of what people may actually have to pay in different situations. I’m afraid I found Professor Sandilands’ essay particularly impenetrable and when I got to a sentence that stated “This involves an egregious fallacy of composition: that what is true of the individual is also true of the whole” I decided that he didn’t actually want anyone to understand what he was talking about and I gave up. Must try harder if he wants people to take an interest. I found Andy’s report for the Green Party much more accessible.
No LVR would be levied on the bricks and mortar part of the duality of your property and your modest income, will not be so modest once the state expropriation of it known as income tax is reduced or ceases. Part of the reason for high ‘house prices’ is not the house but the purchase price of the land, so with the non-tax solution of LVR the purchase price of land would decline, thus making things easier for first time buyers.
What about the nations mortgage debt which of course includes the “duality” of value? Have you run your ideas past BoS, RBS etc etc.
Oh, and why is income tax “state expropriation” and, I imagine by inference, LVT is not?
I not proposing any land value tax, as land has no capital value to be taxed. What I am talking about is the collection of a societally created desirability factor for a fixed supply entity, not made by mankind and had no production costs. This is variously termed Land Value Rating or Land Rental Value and it’s collection is no more a tax than paying for a parking bay or indeed the rent for my flat. This LVR or LRV( erroneously and pejoratively called by some, LVT) is 100% generated by society ( not the same thing as the state) and its 100% collection is thus 100% fair. On the other hand income tax and its siblings represent a purely arbitrary level of state acquisition of individual/corporate labour and there is no fair level–perhaps you could suggest one and tell us why it is fair?
I understand that the LVR is intended to replace income tax, but the question is whether the LVR would be more than the £5500 a year I currently pay in income tax. If it was a similar amount, then I would have no problem (except perhaps when I retire, or if I became unemployed and my ability to pay was reduced), but people need to have some idea if they are to buy into the idea.
My back of the envelope calculations suggest that building plots in my area are about 40% of the purchase price of houses. Taking 40% of the rental costs for houses similar to mine gives an annual land rental value of a little over £6000. This would not be a catastrophic increase compared to my income tax liability by any means but the affluent people who can currently afford to buy houses in the area are likely to be paying at least £15-20K income tax and would see this replaced by LVR of half the amount. It is hard to see how this would address inequality. More to the point it is hard to see how the money raised by LVR could fully replace the full value of income tax if this is a realistic scenario.
I think the immediate future for LVR is as a potential replacement for council tax and non-domestic rates. It could certainly replace part of income tax but I think it is important to retain a variety of taxes and I think that the ability to pay is an important element of what most people think is fair in terms of taxation.
see my comment above on ATCOR—
Well said Paul. I noticed in the Sandilands article “The high and secularly rising price of land …” How can something rise “secularly” FFS?
The Scottish Land Revenue Group describes itself as “a new Glasgow based think-tank”. There’s no “About Us” section on their website but I note the contacts are John Digney and our very own Ron Greer. Is there anyone else in the tank? Who is funding it?
And it says “studies” – plural – commissioned by the SLRG show that [blah]. Could someone point me to the other studies aside from the Sandilands one?
It also says the process would *begin* by zero rating income tax. I thought you progressed gradually to that point, not went cold turkey on day one! In a comment above, Andy Wightman appears to contradict that by saying there will be a transitional phase. WTF?
I’m not saying I can’t see the intellectual arguments for Land Value Tax (or whatever the current euphemism for it is). But we live in a democracy. You can’t impose intellectually elegant solutions. You have to sell them to the average voter on the street. Many of them have invested heavily in buying a home. They’ll read the headlines saying the lefties want to wipe out the value of their houses. Trying getting them to vote for you by wittering on about fallacies of composition and secular rises! I have sympathy with William Fergusson (comments above) asking how much it’s going to cost his farm to which Andy Wightman answers, in effect: “I don’t know”. That’s very bad politics unsellable to the electorate!
Yeah, the example of a new railway line is often cited. Build one and surrounding land prices rise. As such they should be taxed to pay for it because the values have risen. Many sides to this. 1. The landowner hasn’t asked for the railway, the govt (albeit for sound reasons, I love railways btw!) has ‘imposed’ it. 2. House prices also rise, not because of the land they sit on but because of desirability. 3. People earn wages, salaries etc as they can now commute longer distances. So the landowner is being asked to pay for something he or she hasn’t asked for, possibly derives little or no additional desirability from and, given the nature of agriculture, will not directly increase the profitability of his day to day farming operations. Meanwhile, new commuters on this line, perhaps earning 5 or 6 figure salaries have their lifestyles enhanced, house price rise but pay nothing in income tax. Fair?
but the landowner will of course not reject the increase in site value he got for nothing. Amazon did not ‘ask’ for the motorway they have sited their warehouse next to near Dunfermline and the access this gives to the railway and the airport, but they’ll accept the business opportunities this provides and of course they’ll accept the high land values we have created for them, via our infrastructure. Likewise with Starbucks. What was that about their alacrity in paying income tax?
Yes, the ‘house’ prices of the high salary workers did go up through no efforts of their own, but it had nothing to do with the bricks and mortar per se , but through the land values we increased for them. No it’s not fair, but it’s an issue that the collection of LVR would address that. There is no fair level of tax. That’s why we are not proposing another tax, but the collection of rent.
Surely the motorway, railway and airport were all there *before* Amazon located to Dunfermline so they would have had to pay a very high price for that site? It’s not the other way round that Amazon plonked themselves down on a cheap site in the middle of nowhere and then the infrastructure built at tax-payers’ expense came to them out of which they have scored a windfall gain from consequent rise in value of the site as you seem to imply Ron.
yes Amazon took advantage of advantages put there by society and they are currently not paying LVR are they, or else we would not be talking about its implementation, would we? I believe there has been some ‘kerfuffle’ about their income tax not being paid—mmmmm.
Value often has to do with bricks and mortar as well as location. You can go to towns and cities right across the UK and see land values which are lower than areas of comparable physical advantage – location to rail etc etc. Its usually becuase the bricks and mortar and urban design are not as good / attractive as other neighbourhoods. Its seems excessively simplistic to me to try to somehow treat land value changes in isolation. I suspect theres a reason LVT is not common place around the globe. Its not powerful interests keeping it at bay but rather that it’s not nearly as workable as it’s minority of advocates would have us believe.
would two brand new identical houses, one in Bearsden and the other in Blackhill attract the same rental value or purchase price?
That wasn’t my point. It was that the bricks and mortar in a neighbourhood can drive the land value. Its not just about incidental things like state investment in railways etc.
Stop bleating .
How much has agricultural land increased in ” value ” in the last 30 years ?.
The big estate that you manage must have increased in value , has it not ?.
Of course it has but unless you intend to sell it is of little worth to you other than as security for debt. It is the earning capacity of the land that is importand and as the argument above illustrates just becuase land rises in value it doesn’t mean its normal earning capacity has risen.
With a Land Value Tax , you will realise what the farm tenants on your estate endure when negotiating a rent . How awful ?.
They don’t “endure” anything. Its a perfectly normal and respectful business discussion. Just like with their bank, suppliers etc etc. And I doubt we’d be able to negotiate over LVT.
what’s you negotiating power over income tax and council tax like just now?
no tax is being proposed
LVT is great but we bought our flat in Edinburgh for ‘fixed price’ £65,000 in 2000. Now the flat above us (exactly the same size) has been valued at £170,000 and the owner is looking for ‘offers over.’ If LVT were introduced how much would I have to pay annually? I earn about £6000 p.a. Not having to pay council tax would save me about £1400. Andy, please could you calculate this? Thanks.
What council tax band is your flat in? And how many flats are in the stair?
Our council tax band is C. There are 9 flats in the stair.
Well on the basis of the analysis I did for the Scottish Green Party (Figure 10 in the report) a Band C property’s council tax bill will be reduced from £1021 per year to £820 per year. That’s based on averages across Scotland. Flatted properties will actually see a bigger reduction as they make a very efficient use of land (9 houses on a plot instead of one or two). If all of the economic rent of land is collected (that value being substantially capitalised in the increase in value of your flat), there will be an adjustment in the capital value of all land and cuts in other taxes so your net position is difficult to calculate.
In response to the criticism voiced by some on this thread that those advocating different fiscal policies are wasting their time unless the proposal is fully costed and the implications for every owner of land across the country can be calculated – it is obvious that this cannot be done. The valuations are incomplete and out of date and on that element alone, we do not have the money available to fund a comprehensive valuation of land in Scotland!
Conceivable then that 8 people each on £50k plus pa living in a luxury apartment block could pay less than one person living in a rural dwelling or farm? Conceivable?
You mean pay less in LRV? It depends where the luxury apartments are located.
Yes, you could gave several high earners living in a small footprint and one lower earner on a larger footprint. There’s no direct link between the footprint size, location and cash in the bank (ie ability to pay.)
Well well !!
Not wanting to negotiate ?.
You will just need to be frog-marched through the court , at great expense to you , the same way that farm tenants are treated by their landlords . Now we will see how you like it . Enjoy !!.
And how many rent cases have gone to the courts in recent years James? Not many and the most high profile want largely vindicated the landlords position. There will always be a minority of idiots who try to use the system to pressure the other side [tenants do it as well – refusing to engage in the expectation that the LL will back down] but they are a minority. Its a useful political message though to go round suggesting tenants are being cowed right across Scotland becuase it accords to the political narrative of a number of politicians. It doesn’t mean its true.
Oh, and I’ve never been to arbitration or the land court in 20 years of practice.
I will try one question at a time .
How much has Scottish agricultural land risen in value in the last 30 years ?.
Too much. As others have stated it has no relationship to it’s productive capacity. I have no interest in seeing it continue to rise as I’m focussed on earning a living from it not speculating with it. Worth bearing in mind that the majority of farmland buyers are farmers NOT speculators. There will be some but a minority.
I am a farmer who owns his farm and is a keen supporter of Land Value Rating. The market price of the farm has increased by more than £3m since it was bought 22 years ago. This increase is of no advantage to me unless I want to sell it and is the result of our present perverse tax system which encourages investment in landed property and discourages employment and enterprise. The present market price of farmland is at least three times what its productive capacity justifies and is not a good guide for estimating LVR. Farmland is attractive to speculators because of the tax advantages associated with land ownership (inheritance tax and capital gains tax exemption and farm subsidies which increase land prices by about £2000 per acre). We employ 2 full-time staff but we send the take- home pay for another to HMRC every month in Income Tax and NIC. That money would be better spent employing another person to increase the production from the farm. I can not say precisely what the amount of Land Value Rate would be appropriate for the land because I do not know by how much the employment taxes we currently pay will be reduced. I farm in partnership with my wife, my son and his wife and our total payment to HMRC is more than £60k per year. I think we might have a smaller amount of money to find for LVR. I would recommend the method of assessment of LVR used by the State of Queensland when they introduced LVT in 1910. They issued notices to all who owned land, which asked for details of the location and area of the land, an estimate of its value and a payment of the LVT. The land owners provided their own valuations but at the bottom of the notices sent out was a statement that the taxing authority reserved the right to purchase the land at the owners` valuation. No land was purchased by the state. I am confident that landowners in Scotland will be the best judges of the correct amount of LVR. The best example of a country using the collection of land rent to fund most of the costs of government is Hong Kong. When it was guided by Scotsman John Cowperthwaite between 1961 and 1971 all the measures of economic prosperity and social justice (such as % unemployment, literacy, health) increased by between 5 and 10 % per year. He refused to impose tariffs or give subsidies and the government did not go into debt. As the country prospered the market price of leases of land to those who wanted to use it rose to provide the additional funds for education, the provision of social housing and healthcare. No one could invest in the purchase of land in Hong Kong because it belonged to China.
The current yield of income tax, corp tax (2010 figure) council tax and UBR is £17.8bn in Scotland. Shifting all this onto Scotland’s acreage of 19,122,744 will mean an equivalent tax of £601, £141, £99 & £99 per acre for income tax, corp tax, CT and UBR respectively. A total of £931 per acre, if all these taxes were to be shifted into the land. This is a shift, not an increase and I presume no govt will want to see a fall in receipts. So I presume the tax on my 260 acres would have to be £242,015 per year otherwise tax receipts will fall. My current rent is £10k per year. Am I missing something here?
No, the rate would not be the same for all land. If the rental value of your land is £38 per acre than presumably that is what would be levied on the landowner. I’m assuming bare land here, but in practice I assume most agricultural rents include buildings and the rental value of those would not be included.
However I think you are right that LVR will not raise enough to replace all of those taxes. Andy’s report for the green party seems to suggest you could raise £12 billion (the equivalent of income tax alone) if LVR was 10% of the capital value of land. My rough calculations seem to suggest that residential land rental values in my area are likely to be 6% of capital value while bare agricultural land might be as low as 1%. Maybe my sums are wrong but I don’t see how this can replace all those other taxes.
The SGP report was based on revenue neutrality – to replace CT and UBR only. That is not a full system of LVR. The reason that the numbers do not seem to match if you try to do a straight shift from one to the other is that LVR also reduces deadweight losses – that’s what Roger’s paper is trying to quantify. Those deadweight losses represent lost revenue arising from the inefficiencies in the current system. The UK Treasury figures suggest that these losses are 30% of public revenues.
land has no capital value
The essential feature of LVR is that all land will not pay the same amount per unit area. The rate will depend on the value of the land in different locations. Although rural land accounts for about 90% of the area of Scotland it has only 10% of the total market value. The rental value of rural land is a smaller proportion of the total rental value and so urban land would be liable for more than 90% of the total rental payment. Most of the agricultural land in Scotland is classified as “rough grazing” and the least productive and most remote land which is capable of only providing a living for people who can keep all they earn (no employment taxes), there will be no liability to LVR. More people will be able to afford to live on the highlands and islands.
Because houses and buildings will be excluded from LVR the rate for the land will be about 40% of the current average farm rent, based on figures from Scottish Land and Estates in December 2014. No one will be expected to pay more than their land is capable of affording.
Thank you. At last a comment that reflects the reality of living on the land and not just the perception that it is covered in big bags of cash!!! Devil will be in the detail though and how this is calculated and collected
Yes, you are. Land value per acre varies enormously. LRV is levied on the value of specific locations – not an average across a larger area. Urban land is worth £ millions per acre. Yours is worth a few thousand perhaps.
Thanks for that. Need to know the allocation of these before I can make a judgement on this though. Also, if wages do fall, the profits of Starbucks etc will rise, yet with no Corp tax? Politically not going to wash.
I think that’s a key point. Politically I can’t see this flying at all. So all rather academic.
Unlike corporation tax and income tax, Starbucks could not hire a professional tax-avoidance consultant to claim that they did not occupy the land their coffee shops stood upon.
so a dependable, predictable source of public revenue, that will not discourage labour, production and sales, but indeed stimulate them will not wash—why?
Probably because of suspicion of government motives, concerns over the impact on property values – the risks associated with de-leveraging, because as policy is formulated it will get more and more complex to deal with real world complexities etc etc.
nothing wrong in Starbucks making a profit selling the best quality product at the keenest price, don’t want them to be hindered in that by income tax, corporation tax or UBR, just want them to do that whilst paying the public purse the prime site LVR that we created for them.
Fair enough, need more figures to make a proper judgement on this though
Starbucks does not pay much corporation tax now. Most multinational companies avoid paying corporation tax by shifting their liability do so to countries where the tax rate is lower. The present tax laws are powerless to stop them.The size of the national deficit and debt are the result of the harmful taxes on employment and enterprise destroying their own tax base. Employment is reduced by taxing employment ( income tax and NIC) trade is reduced by taxing transactions (VAT). Neither the amount of land nor its rental value are reduced by collecting land rent to fund the necessary functions of government. Because people will keep more (ideally all) they earn and their access to land on which to work will increase, the rental value of land will increase too. This is what happened in Hong Kong.
Andy Wightman doesn’t believe that LVR is an attractive proposition to the electorate so if even its proponents don’t believe it can fly, then it would seem to be doomed from the word go …
would greater levels of income tax, UBR and corporation tax, increases in council tax and VAT be a more attractive proposition—and why?
Ron, you have to start thinking in realpolitik, not academic think-tank terms.
The electorate don’t pay UBR or Corporation Tax so 90+% of them don’t even know what they are never mind care whether they’re increased. (Although having said that, the % who do know would probably approve of an increase in Corp Tax as having a go at tax dodgers like Starbucks etc.)
As regards income tax, council tax and VAT, these are taxes the electorate are familiar with and so, to a certain extent, “comfortable” with even though they will complain about an increase of a percentage point and welcome a similar decrease.
But try and tell the electorate you’re going to abolish their familiar taxes in one go and instead load the entire burden of state expenditure on home owners, then they’re going to say “Nah, you’re having a laugh. Aren’t you?”
If even Andy Wightman, the author of these reports about LVR/LRV/LVT for Scotland, England and Northern Ireland, doesn’t believe the proposals are electorally popular, then how on earth are you going to bring it about?
oh, massa your not going to take away those comfy chains are you?
by making it electorally popular.
One of your dafter responses this and you need to think a bit more about what you are saying.
I have tried to estimate whether our farm business will be a winner or a loser when LVR is introduced. At first sight it is obvious that we will be losers because the market price of our farm will fall by about £3m. A closer look shows that we will be winners. The first thing to note is that the earning capacity of the farm will not be diminished. Its current high price is no advantage because we do not want to sell it. The earning capacity did not rise during the period of inflation of land prices, why should it reduce when they fall? With the removal of income taxes we will gain by being able to employ more staff. There will also be a saving in the lower costs of administration and accounting for the current obligation to pay the taxes. The reduction in employment taxes for those who provide goods and services for the farm will lead to lowering our costs of production.
All landed property prices will fall, especially houses and there are concerns expressed about the increase in the number of cases of negative equity. For people with mortgages this will not be disastrous if their take home pay is maintained and job security is increased by the stimulated rise in employment.The average level of take home pay will be higher as employers find it profitable to recruit more workers. It is the ability to repay any debt which is most important, not the price of the collateral against which it is secured. No one experienced negative equity when building societies were the only sources of loans for house purchase. After the banks were allowed into the market, the ability to repay was abandoned and the rise in house prices became the only criterion for issuing a mortgage. A house will once more be a place to make a home instead of a place to invest a large amount of borrowed money in the hope of making a “capital” gain. Most of the rise in house prices is in the price of the land not in the costs of building.
hear hear and hear. a wonderful post Duncan